This study addresses the political economy of sector reforms. Sustainable reform processes which improve equity, efficiency and effectiveness in key economic and social sectors are often important elements of national poverty reduction strategies in low- and middle-income countries. For international development agencies wishing to engage in these processes, understanding the significance of power relations within the sector, vested interests, and the links to national political processes can be critical to being an effective actor in policy dialogue. This study explores these issues through the analysis of case studies of World Bank engagement in two areas: agricultural liberalization, and public-private partnerships in water supply and sanitation. The objectives of the study are twofold: (a) to analyze the political economy of reform by looking at stakeholder interests, incentives, institutions, risks, opportunities, and processes from a social analysis perspective
and (b) to illustrate 'what works, why and how' for a better understanding and management of political economy issues in the design and implementation of reforms and development operations. The study draws on operational experiences to inductively develop a conceptual framework that offers an innovative way to look at the political economy of policy reforms. The study presents a solid basis for a future program of work which can address these issues.